Personal loan rates are plunging. Can you take advantage of it?

Personal loans are a popular choice for people who need money for various daily purposes. Many people take out personal loans to pay off credit card debt, fund unexpected medical expenses, or finance home maintenance and repairs. Rates are usually quite low, and lately they have taken a nosedive.

Personal loan rates seem to be on a downward trend, and for borrowers with excellent credit ratings, that means extremely cheap loans. For 3-year fixed personal loans, individuals can get rates as low as 10.36%. But can you take advantage of these rates?

The personal loan rates that you will be granted will depend on your credit score. Lenders decide on an interest rate taking into account, among other things, your credit score. The worse your credit rating, the higher your interest rate will be.

Personal loans are therefore cheap for some people but very expensive for others. If your credit score is below 600, you could pay up to 29.32% on a 5-year loan. That’s significantly higher than most credit card rates.

Additionally, the benefits you get from taking out a personal loan depend on the terms of the loan as well as your own ability to repay it. Here are some of the issues to consider.

Personal loans for debt consolidation

Debt consolidation is one of the main reasons people take out personal loans. Debt consolidation consists of repaying several sources of debt with a single loan and then repaying only that loan. This can be useful if you have a number of credit cards and other sources of debt with high interest rates.

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Even if the difference between the interest rates you are already paying and the interest rates on the new loan is small, you can still benefit from debt consolidation. This makes loan repayment easier and more convenient while establishing a fixed term over which you will pay.

However, this can also lead to unforeseen costs. If your personal loan term is longer than your current loans, you could end up paying more than you should in the additional months or years. It’s also worth mentioning that if you need debt consolidation, you probably don’t have a strong credit rating and are unlikely to get a low-interest personal loan.

Medical bills

Medical bills in the United States are more than four times higher than in any other developed country. Even with good health insurance, you still have to pay high deductibles and copayments. Health insurance companies are also reluctant to pay for ambulance rides which can cost thousands of dollars. Sudden medical expenses may therefore force you to look for money.

A personal loan can help pay your medical bills when you have few other options. With a low interest rate, you can ensure you get the care you need without paying much more than you can afford.

However, there are alternatives. You can ask your health care provider to pay your bill in installments and they can offer you a cost-effective solution.

Urgent needs at home

Whether you own a home or not, you may encounter problems that you will have to pay to take care of. It could be fixing or buying new appliances, fixing roof leaks, or servicing your HVAC. Waiting until cash is available can make the problem much worse.

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A personal loan can be a good option, especially if the expense is not too extreme. As long as your credit score is reasonable, it may be best to use your credit card to pay for these expenses. However, due to the fixed terms of the loan, you will pay it back over a longer period, which can make the loan more expensive than you think.

Should I take out a personal loan?

Personal loan rates are currently low and seem to be trending down. This makes personal loans very attractive for people in need of an influx of cash. Although personal loans can be a great option, with low interest rates and favorable terms, they can also be quite expensive.

As with most other types of loans, whether or not you qualify for the low rates largely depends on your credit score. If your credit score is particularly low, you might be better off finding alternatives.

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